changing roles: leadership in the 21st century...leadership in the 21st century gregory g. dess...

Encouraging challenges to the status quo, leaders of organizations in thenew century will need to share knowledge with—and empower—

ALL their employees.

Changing Roles:

Leadership in the 21st Century

GREGORY G. DESS JOSEPH C. PICKEN

O n the threshold of the 21st century, orga-nizational leaders face a whole new set

of management challenges. The globalizationof markets and the rapid diffusion of infor-mation and communications technologieshave transformed the economies of the devel-oped countries of the world. Citing a recentOECD study, the Economist points out that

more than half of the total GDP in therich economies is now knowledge-based, including industries such astelecommunications, computers, soft-ware, Pharmaceuticals, education andtelevision. High-tech industries havenearly doubled their share of manufac-turing output over the past twodecades, to around 25 percent, andknowledge-intensive services aregrowing even faster. Knowledge work-ers . . . from brain surgeons to journal-ists . . . [now] account for eight out often new jobs.

In industry after industry, it's no longerjust a game of market power and financialmuscle, economies of scale, and breadth ofscope. Over the past century, the locus of

18 ORGANIZATIONAL DYNAMICS

wealth creation has shifted from capital-intensive industries like steel and automobilesto information-intensive industries like infor-mation services, financial services, and logis-tics. As we stand on the threshold of theknowledge age, the most powerful sources ofgrowth, employment, and wealth creation arefound in innovation-driven industries—com-puter software, biotechnology, and the like—where innovation, flexibility, responsiveness,and the creative redefinition of markets andopportunities are the new sources of compet-itive advantage.

As the strategic emphasis shifts from theefficient management of mass markets andtangible assets to innovation and the effectiveutilization of knowledge and human capitalresources, organizations and their leadersmust also change. More capable leadership atthe top—smarter managers —is not necessar-ily the answer. Rather, to compete in theinformation age, firms must increasingly relyon the knowledge, skills, experience, andjudgment of all their people. The entire orga-nization, collectively, must create and assimi-late new knowledge, encourage innovation,and learn to compete in new ways in an ever-changing competitive environment.

The demands of this changing environ-ment present a complex set of challenges—and require a shift in focus and emphasis—fororganizational leaders. The traditional toolsand techniques of management are designed,in large measure, to ensure organizational sta-bility, operational efficiency, and predictableperformance. Formal planning processes,centralized decision making, hierarchicalorganization structures, standardized proce-dures, and numbers-oriented control systemsare still the rule in most organizations. Asimportant as these structures and processesare to organizational efficiency, they tend tolimit flexibility and create impediments toinnovation, creativity, and change. To meetthe challenge, organizational leaders must"loosen up" the organization—stimulatinginnovation, creativity and responsiveness,and learn to manage continuous adaptationto change—without losing strategic focus orspinning out of control.

To position their organizations to com-pete and win in the competitive environmentof the 21st century, organizational leadersmust place less reliance on traditional struc-tures and controls, and focus their efforts onfive key priorities:

• Using strategic vision to motivate andinspire

• Empowering employees at all levels• Accumulating and sharing internal

knowledge• Gathering and integrating external

information• Challenging the status quo and

enabling creativity.

USING STRATEGIC VISION TOMOTIVATE AND INSPIRE

Every organization has a strategic vision,explicit or implicit. Effectively employed, astrategic vision provides many benefits: aclear future direction; a framework for theorganization's mission and goals; andenhanced employee communication, partici-pation, and commitment. But if an organiza-tion's vision exists only in the imagination of

a single individual, or is shared only with aselect few at the top, its value is diminished.

The power of strategic vision lies in howit is used. An effective strategic vision is clear,compelling, and communicated in a way thatmotivates and inspires a broadly shared senseof organizational direction and purpose. Sucha vision is essential to developing an organi-zation that can learn and adapt to a complex,interconnected, and rapidly changing envi-ronment. In the words of William O'Brien,CEO of Hanover Insurance: "Before there canbe meaningful participation, people mustshare certain values and pictures about wherewe are trying to go. We discovered that peo-ple have a real need to feel that they're part ofan ennobling mission." Similarly, Xerox PARCguru John Seely Brown asserts: "The job ofleadership today is not just to make money:It's to make meaning."

Percy Barnevik, CEO of the Swedish-Swiss holding company that includes Asea-Brown Boveri, nurtures pride and creativitywith a vision that focuses on the organiza-tion's broader role in society:

It is important that people in an orga-nization have something to be proudof. It is important that our people canfeel pride in something beyond thenumbers. For example, if you look atour company now, we have been pio-neering investments in Eastern Europe,spearheading East-West integration.Many of our people are proud of par-ticipating in that process. The same canbe said about our work in the environ-mental field. I would like to create anddevelop an image of us as helping toimprove the world environment. Forexample, transferring sustainable tech-nology to China or India, where theyhave a tremendous need to clean uptheir coal-fired power plants.

Our employees can look at work likethat and see that we contribute some-thing beyond mere shareholder value.Internally, we can pride ourselves oncertain environmental improvements

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Gregory G. Dess holds the Carol MartinGatton Endowed Chair in Leadership andStrategic Management at the University ofKentucky. He presently serves on the edito-rial boards of the Academy of ManagementReview, Strategic fi^anagement Journal, andthe Journal of Business Research. Hisresearch on strategic decision making, com-petitive advantage, and organization-envi-ronment relations has been published inmany of the leading academic and practi-tioner journals.

In 1994, Professor Dess taught at theUniversity of Oporto (Portugal) on a Fulbrightlectureship. He has also taught in the M.B.A.program at the Norwegian School of Man-agement and has conducted executive edu-cation programs on strategic managementand leveraging human capital in the UnitedStates, Norway, Portugal, and Australia. Dr.Dess received his bachelor of industrial engi-neering from the Georgia Institute of Tech-nology and his Ph.D. in business administra-tion from the University of Washington.

without being too bombastic or boastfulabout them. This is particularly relevantfor attracting young people to the com-pany. They are by and large not happyjust to work for a big company with highprofits; they also like to see a purposethat goes beyond numbers. It is impor-tant that a company can be perceived aschanging the world in a positive way.

As Barnevik suggests, an effective strate-gic vision is multifaceted, addressing theneeds and concerns of all the organization'sstakeholders, not just its employees. The for-mulation of a strategic vision requires an in-depth understanding and knowledge of theorganization, its competitive environment,the needs and priorities of its stakeholders(customers, suppliers, employees, and share-holders), and other salient environmentaltrends and forces. This understanding mustbe shaped and molded into a clear and com-pelling vision of what the organization is,what it could become, and how it will getthere. The most powerful visions are clearabout the direction and objectives and proac-tive in approach, but deliberately vague aboutthe means—leaving room for flexibility indeveloping viable strategic options and solv-ing complex problems.

At times, creating a vision involves whatthe CEO of Yokogawa, GE's Japanese partnerin the Medical Systems business, calls "bullettrain" thinking. That is, if you want to increasethe speed by 10 miles per hour, you look forincremental advances. However, if you wantto double the speed, you've got to think "outof the box"—widen the track, change the over-all suspension system, and so on. In today'schallenging times, leaders typically don't justneed to keep the same train with a few minortweaks, but rather come up with more revolu-tionary visions. Consider, for example, howEnron's CEO, Kenneth Lay, completelychanged his firm's (and its industry's) mentalmodel of the natural gas pipeline industry:

In 1986, after Enron was formed by themerger of two natural gas pipelinegiants. Lay determined that it was time


to change the entire way his firm didbusiness. According to Lay: "I wastrained as an economist, love free mar-kets, and was convinced that govern-ment regulation was causing most ofthe problems in the industry."

By pushing for deregulation, Lay feltthat Enron could use all of those naturalgas lines as a network to buy gas whereit was cheap and sell it where it wasneeded. (Regulation required a gaspipeline to run single-mindedly from aspecific field to a particuiar utility com-pany, with few shifts or diversions.)Although other gas utilities pressed forcontinued regulation, Enron hiredaggressive, well-paid traders andalmost single-handedly began creatingspot markets in gas. Enron found thatits new approach and structure couldreduce the cost of gas for some utilitiesby 30 percent to 50 percent. "Wechanged the concept of how the natu-ral gas industry was run—new prod-ucts, new services, new kinds of con-tracts, new ways of pricing," says Lay.Texas Senator Phil Gramm's take onKenneth Lay: "He has the ability to stepback from an issue and see the big pic-ture, something that 1 don't see in a lotof people in business."

Guided by Lay's innovative vision,Enron has turned in an impressivefinancial performance. Sales soared 52percent to $20.2 billion in 1997. The aver-age annual total return to investors overthe past decade has been 19.7 percent.

Visionary thinking is not, of course, theexclusive province of the firm's top executive.Nor should it be. Broad participation in theformulation of a strategic vision offers multi-ple perspectives and encourages commit-nrient. Back in 1994, during the early stages ofSears' dramatic transformation, the firm's top120 executives were grouped into task forcesfocused on such key strategic elements as cus-tomers, employees, and financial perfor-

Joseph C. Picken is a member of theadjunct faculty in organizational behavior/business policy at the Edwin L. Cox Schoolof Business at Southern Methodist Univer-sity. He is also president of Joseph C. Picken& Associates, a consulting firm providingstrategy, operations and financial manage-ment, and turnaround management consult-ing services to mid-sized and emerginggrowth firms. Over a business and consultingcareer spanning nearly 30 years, Dr, Pickenhas held executive positions in Fortune 500corporations and has sen/ed as CEO, COO,or CFO of several high-tech entrepreneurialcompanies.

Dr. Picken holds an A.B. in economicsfrom Dartmouth College, an f .B.A. infinance and accounting from the Amos TuckSchool of Business Administration at Dart-mouth, and a Ph.D. in business administra-tion from the University of Texas at Arlington.He has published numerous articles in tradeand professional journals, conducted semi-nars throughout North America, and is theauthor (with Gregory G. Dess) of MissionCritical: The Seven Strategic Traps ThatDerail Even the Smartest Companies (1997)and Beyond Productivity: How Leading Com-panies Achieve Superior Performance byLeveraging Their Human Cap/(a/(1999).

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mance. Working together, they arrived at avision for the business: a "compelling place toshop, work, and invest."

This vision was implemented in thedesign of a comprehensive performance mea-surement system based on key indicators: onefor compelling place to work, two for com-pelling place to shop; and three for com-pelling place to invest. Simply an academicexercise? Hardly! A consulting firm was hiredto develop a quantitative model that permitsmanagement to make inferences about causeand effect with a rather high level of pre-dictability. According to Anthony Ricci, chiefadministrative officer:

Now we know that if a store increasesits employee satisfaction score by fivemeasuring units this quarter, the fol-lowing quarter its customer-satisfactionscores will go up by two units. And if astore increases its customer satisfactionby two units this quarter, its revenuegrowth the following quarter will beatour stores' national average by 0.5 per-cent It's not guesswork or theory any-more. We have built an empirical modelthat says unless you have a trained, lit-erate, motivated, competent workforce,and give them decision-making author-ity, you don't get satisfied customers nomatter how good the merchandise is.

inspiring the organization and its stake-holders with a clear vision and compellingsense of purpose is a necessary but not a suffi-cient condition for the development of anorganization that can learn, adapt, andrespond effectively to a rapidly changingcompetitive environment. Empowerment,providing motivated employees with theresponsibility and authority to implement thevision, is equally important.

EMPOWERING EMPLOYEES ATALL LEVELS

Organizations often fall prey to the "heroes-and-drones syndrome," wherein the value of


those in powerful positions are exalted andthose who fail to achieve top rank are dimin-ished. Such an attitude is implicit in phraseslike "Lead, follow, or get out of the way" or,even less appealing, "Unless you're the leadhorse, the view never changes." The fact is, ofcourse, that few will ever reach the top posi-tions in an organization, but in a competitiveenvironment increasingly dependent onknowledge and information, the strongestorganizations will be those that effectively usethe talents of all the players on the team.

"The great leader is a great servant"asserts Ken Melrose, CEO of Toro Companyand author of Making the Grass Greener on YourSide. In his view, the key role of top manage-ment is the creation of an environment inwhich employees can achieve their potentialas they help move the organization toward itsgoals. Many leading organizations have cometo realize that the results available in an envi-ronment based on trust and cultural controlare superior to those formerly achieved undera system of rules, regulations, and hierarchy.

Instead of viewing themselves asresource controllers and power brokers, lead-ers must truly envision themselves as flexibleresources willing to assume numerous (per-haps unaccustomed) roles—coaches, infor-mation providers, teachers, decision makers,facilitators, supporters, or listeners—depend-ing on their employees' needs. The key toempowerment is effective leadership. Accord-ing to Melrose; "I came to understand thatyou best lead by serving the needs of yourpeople. You don't do their jobs for them; youenable them to learn and progress on the job."

Consider Chris Turner's perspective. She'san executive called the "Learning Person" forXerox Business Services (XBS)—a $1 billionorganization growing at 40 percent a year.Largely through her efforts, XBS has createdan environment that not only produces busi-ness results but also supports personal growth:

My job is to disturb the system. I givepeople new ways to think. It's more amatter of offering people different per-spectives and influencing their think-ing than trjnng to drive them. It sounds

strangely itidirect. Why not adopt amore top-down approach? It turns outyou can't "empower" anyone. This isnot the freeing of the slaves.

Chris Turner makes the insightful pointabout empowerment requiring more than thesprinkling of fairy dust. At first glance, it mayappear that this overstates or trivializes thecase, but it is critical that organizations look atempowerment as involving more than just"giving more power" to people throughoutthe organization. Empowerment also requiresthat organizations redistribute informatkm,knoioledge (i.e., skills to act on the information),and reivards. For example, a company maygive frontline employees the power to act as"customer advocates," doing whatever is nec-essary to please the customers. To functioneffectively in this role, however, empioyeeswill also require appropriate training andknowledge—information about customerexpectations, timely feedback, and data onfirm performance. In order to make the bestdecisions in each customer interaction,employees must clearly understand the goals,objectives, and priorities of the organizationand be knowledgeable about its internal pro-cedures and processes—how key value-creat-ing activities are related to each other. Finally,rewards should be allocated on the basis ofhow effectively employees use this informa-tion, knowledge, and power to improve thequality of customer service, as reflected in cus-tomer loyalty and overall firm performance.

If the widespread sharing and distributionof information and knowledge are key toempowerment, the organization's internal pro-cesses and practices for accumulating and shar-ing internal knowledge and information alsorepresent a key link in the chain. Effective lead-ership requires that these internal processesand practices be consistent with and support-ive of the broader goals of the organization.

ACCUMULATING AND SHARINGINTERNAL KNOWLEDGE

Most organizations have elaborate formal

processes and devote considerable resourcesto gathering, organizing, and analyzing infor-mation about their inner workings and over-all performance. But all too often, the endproducts of this effort are available only to alimited group of managers—individuals whofrequently have insufficient time to read,understand, and meaningfully interpret thevolumes of information available. At lowerlevels, individuals see only the isolated bitsand pieces of informahon related to their spe-cific activities, and are largely in the darkabout what is going on elsewhere or howtheir efforts relate to the overall performanceof the organization. As a result, much of thepotential value created in this information-gathering process is wasted because the infor-mation is not made available to those whocould most effectively use it. Effective leadershave learned how to leverage their invest-ment in internal information by (1) sharinginformation and ideas across the organiza-hon; (2) encouraging and cultivating informalsources of information; and (3) utilizing tech-nology to facilitate both the gathering andsharing of information.

Sharing Information and Ideas

Jack Stack is president and CEO of SpringfieldReManufacturing Corporation (in Spring-field, Missouri) and author of The Great Gameof Business (Doubleday/Currency, 1992). He isgenerally considered the pioneer of "openbook" management—an innovative approachto gathering and disseminating internal infor-mation. Implementing this system involvesthree core activities. First, numbers are gener-ated daily for each of the company's employ-ees, reflecting their work performance andproduction costs. Second, this information,aggregated once a week, is shared with all thecompany's people—everyone from secre-taries to top management. Third, extensivetraining—how to understand balance sheets,income statements, and cash flows—is pro-vided to enable employees to use and inter-pret the numbers appropriately. In explainingwhy SRC embraces open-book management,Stack provides an insightful counter-perspec-

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tive to the old adage: "Information is power";

We are building a company in whicheveryone tells the truth every day—notbecause everyone is honest but becauseeveryone has access to the same infor-mation: operating metrics, financialdata, valuation estimates. The morepeople understand what's really goingon in their company, the more eagerthey are to help solve its problems.Information isn't power. It's a burden.Share information, and you share theburdens of leadership as well.

Whole Foods Market, Inc., the largest nat-ural foods grocer in the United States with 43stores in ten states, places a strong emphasison teamwork throughout the organization.The company's "gain sharing" program tiesbonuses directly to team performance andteam members vote on who gets hired. Whatreally makes the system work, however, isCEO John Mackey's "no secrets" manage-ment philosophy: a dedication to sharing vir-tually all company information with allemployees:

The curious team member at any levelof the company has access to nearly asmuch operating and financial data asanyone in the Austin, Texas headquar-ters. In Ron Megahan's store, for exam-ple, a sheet posted next to the timeclock lists the previous day's sales bro-ken down by team. Another sheet liststhe sales numbers for the same day lastyear. Once a week, Megahan's storeposts a fax that lists the sales of everystore in the New England region bro-ken down by team, with comparisonsto the same week last year, as well asyear-to-date totals. Once a month,stores get detailed information on prof-itability. The report analyzes sales,product costs, wages and salaries, andoperating profits for all 43 stores. Thedata is sensitive, but it is freely availableto any employee who wants to see it.And store managers routinely review it


with their team leaders. Since individ-ual teams make decisions about laborspending, ordering, pricing—the fac-tors that determine profitability—thereports are indispensable.

An additional benefit of the informationsharing at Whole Foods is the active processof internal benchmarking. Competition isintense. Teams compete against their owngoals for sales, growth, and productivity;against different teams in their stores; andagainst similar teams at different stores andregions. On a periodic schedule, each WholeFoods store is toured by a group of as manyas 40 visitors from another region. The tour isa mix of social interaction, reviews, perfor-mance audits, and structured feedback ses-sions. Lateral learning—discovering whatyour colleagues are doing right and carryingthose practices into your organization—hasbecome a driving force at Whole Foods.Mackey puts it bluntly: "If you don't cross-pollinate, you become a hick."

Cultivating Informal Sources ofInformation

In most organizations, the formal sources ofinternal information represent the by-prod-ucts of an accounting system designed yearsearlier and, by its very nature, focused onwhat happened weeks or months ago. Aggre-gated, summarized, standardized, and sani-tized, this kind of information has its placebut lacks the "freshness" and urgency ofdirect personal communications throughinformal channels. Most organizations havewell-developed patterns of informal commu-nications, but frequently those at the top are"out of the loop." To successfully tap intothese informal networks, managers must (1)listen effectively; (2) he accessible—demonstratethe desire for information and feedback; and(3) provide opportunities for informationexchange.

In a recent survey of presidents, CEOs,board members, and top executives in a vari-ety of nonprofit organizations, respondentswere asked what differentiated the successful

candidates for promotion. The consensus; Theexecutive was seen as a person who listens.According to Peter Meyer, the author of thestudy:

The value of listening is clear: You can-not succeed in running a company ifyou do not hear what your people, cus-tomers, and suppliers are telling you.Poor listeners do not survive. Listeningand understanding well are key tomaking good decisions.

Effective leaders must bev 'are of theerrors of poor listening and misinterpretation.Once an associate told movie producer SamGoldwyn that audiences would not respondto the script he wanted to produce—it was toocaustic. Goldwyn's reply: 'Too costly! To hellwith the cost. If it's a good picture, we'll makeit." Did he miss the point?

John Chambers, president and CEO ofCisco Systems, the $6 billion networkinggiant, has an effective vehicle for discoveringpotential problems and getting candid feed-back from employees. Every year during theirbirthday month, employees at Cisco's corpo-rate headquarters in San Jose receive an e-mail invitation to a "birthday breakfast" withChambers. Any question is fair game at thesesessions, and the employees don't hold back—asking tough questions about strategy andoperations, and providing stark assessmentsof perceived management failings. Althoughnot always pleasant. Chambers believes it isan indispensable hour of unmediated interac-tion, observing: "I'm not there for the cake."

Using Technology toLeverage Efforts

Technology can play a vital role in gatheringand disseminating information across anorganization. To illustrate, at PeopleSoft, afirm with a powerful position in one of tech-nology's hottest sectors, enterprise resourceplanning (ERP) software, all new hires receive

the same laptop: a top-of-the-linemodel with a CD-ROM drive, a high-

speed modem, and lots of performanceenhancements. One purpose in givingeveryone the same computer is tounderscore the company's aversion tohierarchy. A more important purpose isto support its all-important global net-work. At PeopleSoft, a laptop isn't justa personal-productivity device. It's thepoint of entry into a massive informa-tion infrastructure that spans conti-nents and time zones. "You can takeyour laptop to any of our offices any-where in the world, plug it in, and thenetwork recognizes you as if you werein your home office," CIO Steve Zaratesays with obvious pride.

CEO Dave Duffield is very explicit aboutthe kind of company he's building. He states:"The objective is to have aii 4,500 peopleknow what matters. If people don't have totalaccess to information, they have to guesswhat they should be doing. Both e-mail andLotus Notes databases are powerful forces foropen access at PeopleSoft. Over 400 databasesstore marketing presentations, intelligence oncompetitors, and status reports on projects.Claims Duffield: "Anyone can get to anyoneelse or to any piece of information."

Sharing internal information is impor-tant, but if the organization is out of touchwith its external environment, the organiza-tion's strategy will miss the mark and theinformation shared internally may be irrele-vant. In the following section we will discusshow leading organizations learn from theirenvironments—gathering, distributing, andintegrating critical external information intotheir organizational knowledge base.

GATHERING AND INTEGRATINGEXTERNAL INEORMATION

Organizational strategies and competitiveresponses are frequently based more on man-agement's collective assumptions, premises,and beliefs than on an empirical understand-ing of the environment. Hamel and Prahalad,in Competing for the Future, maintain that

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"every manager carries around in his or herhead a set of biases, assumptions and presup-positions about the structure of the relevant'industry,' about how one makes money inthe industry, about who the competition isand isn't, about who the customers are andaren't, about which technologies are viableand which aren't, and so on." Peter Druckercalls this interrelated set of assumptions the"theory of the business."

Strategies frequently go awry when man-agement's internal frame of reference is out oftouch with the realities of the business situa-tion, when one or more of management'sassumptions, premises, or beliefs are incor-rect, or when internal inconsistencies amongthem render the overall "theory of the busi-ness" no longer valid. These assumptionsmust be periodically updated and validatedon the basis of a realistic appraisal of currentconditions.

Recognizing the opportunities—and thethreats—in the external environment isequally vital to a firm's success. The organiza-tion must become "externally aware" and sen-sitive to all that is going on around it. Howeffectively an organization gathers, interprets,and integrates relevant external informationinto its internal decision-making processeshas a lot to do with its competitive perfor-mance. Focusing exclusively on the efficiencyof internal operations may result in a firm'sbecoming, in effect, the world's most efficientproducer of typewriters or leisure suits—hardly an enviable position! Arthur Martinez,chairman of Sears, Roebuck & Co., puts it thisway: "Today's peacock is tomorrow's featherduster."

In the business world, many peacockshave, in essence, become feather dusters overthe past several years {or at least had theirplumage dulled!). Consider Novell and Sili-con Graphics in the high-tech sector—bothhave recently fallen upon hard times. Novellunwisely tried to go head to head withMicrosoft. Silicon Graphics ignored the PCmarket and mistakenly focused on high-endmachines (a much smaller market)—includ-ing their purchase of troubled Cray Research.McDonald's insular management culture has


cost them more than a few feathers in recentyears. In addition to an eroding market share,their recent two-year total return was 3 per-cent. Compare this with the benchmark per-formance of some of the world's top brands—Coca-Cola (71 percent), Gillette (101 percent),Sony (49 percent), and Walt Disney (49 per-cent)!

In a rapidly changing competitive envi-ronment, the organization's "theory of thebusiness" must be continuously tested,updated, and refined with new information.Who is responsible for gathering and inter-preting the critical information that everyorganization needs to validate its keyassumptions and identify new opportunities?The job is too big—and too important—to bedelegated to a select few. It must become partof everyone's job, from the CEO on down,and the rewards for those who sense theopportunities and get it right are tremendous!

Recall Andy Grove's legendary "bet-the-company" strategic move in 1985, when Intelwalked away from the memory chip businessthat launched the company two decades ear-lier. Sales and profits for 1997 soared to $25.1billion and $6.9 billion, respectively, and thefirm enjoys a near-monopoly in microproces-sors.

Most readers are probably less familiarwith Paul Orfalea's dramatic success story.While most students were whining about thehigh cost charged for copy services—10 centsper page—at the library of the University ofCalifornia at Santa Barbara, Paul sensedopportunity. With a $5,000 bank loan heopened his first "copy center" in 1970—arented former hamburger stand near campus.He went by the name "Kinko" because of hiscurly red hair. His huge chain now has over860 stores—expected to grow to 2,000 loca-tions by the year 2000. In January 1997, theNew York investment firm of Clayton,Dublilier & Rice, Inc. acquired a one-thirdinterest in Kinko's for $219 million to help spurthe organization's growth and expansion.

Two totally different industries—semicon-ductors and reproduction services—but in bothcases, a dramatic success began with the per-ception of an opportunity that no one else rec-

ognized. So how do leaders ensure that theirorganization is "in touch" with its environ-ment? We believe the process begins by creat-ing a "culture of environmental awareness."

In small entrepreneurial organizations,one externally aware visionary who is alert tothe potential opportunity or sees the firstsigns of impending danger may be enough.In larger organizations, however, the CEOcan't do it all. He or she can, however, createand reinforce a culture that is sensitive to andaware of its environment, curious about itssurroundings, and responsive to the earlysignals of change. Hundreds of pairs of eyesand ears wiil clearly be more effective thanone or two in detecting the early signals ofenvironmental change. We believe that fivekey elements must be addressed in creating aculture of external awareness:

• Prioriti/, Gathering and sharing relevantexternal information must become an orgaru-zational priority—part of the culture. Itsimportance and urgency must be demon-strated and communicated by timely and rele-vant examples of the successful use of currentintelligence and the adverse consequences ofnot having timely and relevant information.

• Involvement. Everyone must beinvolved. Frontline customer contact person-nel—salesmen, service technicians, purchas-ing agents, clerks and receptionists—are con-stantly in touch with customers, suppliers,and competitors, and their committedinvolvement is essential.

• Focus. The effort must be focused. Noorganization needs to know everything thatis going on in its environment—but somethings are vital. People need to know what tolook for—what kinds of information are rele-vant and important to the success of the orga-nization—and what can be safely ignored.

• Process. Internal processes must beimplemented to ensure that relevant infor-mation is quickly and accurately communi-cated within the organization, properly inter-preted, and delivered to those who have theauthority and responsibility to take appropri-ate action.

• Motivation. Employees must be moti-vated to participate and contribute. Formal

incentives, rewards, and recognition havetheir place, but frequently, positive feedbackand an understanding of how an individualcontribution helped the organization are suf-ficient motivation.

While many managers will acknowledgethe need for a better understanding of theircompetitive environments, most organiza-tions are unwilling to invest the organiza-tional resources necessary to implement a for-mal program of competitor intelligence. Moreoften than not, managers take advantage of avariety of less formal—but not necessarily lesseffective—means to keep in touch with theirenvironments. Some of the most interestingapproaches include using the Internet as aresource, networking, benchmarking, andsharing information with supply chain part-ners. A few selected examples can illustratethese points:

Using the Internet andOther Resources

The Internet has dramatically accelerated thespeed with which anyone can track downuseful information or locate people whomight have useful information. For example,locating an organization's former employ-ees—always a good source of information—used to be quite a challenge. Today, however,many people post their resumes on the Web,participate in discussion groups and saywhere they work. It's pretty straightforward.

When everyone is involved, even "gardenvariety" sources for the acquisition of externalinformation become more powerful. Much canbe learned from trade and professional jour-nals, popular business bool« and periodicals,but no one individual has time to read themall. If, however, everyone in the organization isinvolved in gathering external information, abroader range of sources can be covered.

Networking

Networking among colleagues both insideand outside one's industry is a useful tech-nique for gathering external information.Intel's Andy Grove, for example, picks the

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brains of people like DreamWorks SKG'sSteven Spielberg and Tele-CommunicationsInc.'s John Malone, He believes that suchinteraction helps to provide insights into howto make PCs more entertaining and better atcommunicating. Internally, he spends timewith the young propeller-heads who run IntelArchitecture labs, an Oregon-based skunkworks that Grove hopes will become the defacto R&D lab for the entire PC industry.Other effective networking venues includeprofessional and trade orgaruzations, meet-ings and conventions.

Benchmarking

Benchmarking is often a useful source ofexternal information. Here, managers seekout the best examples of a particular practiceas part of an ongoing effort to improve thecorresponding practice in their own organi-zation. When Xerox, for example, wanted toimprove its order fulfillment operations, itwent to L.L. Bean, the Freeport, Maine, mail-order house. Although the products of thetwo companies have little in common, theorder-filling processes were very similar. Bothinvolve picking items that varied so much insize and shape that they had to be pickedmanually. L.L. Bean was able to "pick" ordersthree times as fast as Xerox, and throughbenchmarking and thoroughly studying L.L,Bean's process, Xerox was able to cut its ware-housing costs by 10 percent.

Sharing Information with Supply ChainPartners

Many organizations leam a great deal by regu-larly sharing information with their customersand suppliers. William McKnight, head of 3M'sChicago sales office, required that the salespeo-ple of abrasives products talk directly to thepeople in the shop to find out what theyneeded, instead of calling on the executives inthe front office. This was innovative at thetime— in 1909—and is still a good practice, illus-trating the need to get to the end user of theproduct or service. McKnight went on tobecome 3M's president from 1929 to 1949 and


chairman from 1949 to 1969. More recently,Fred Taylor, senior vice president for GlobalMarketing at Gateway 2000, discussed thevalue of customer input in reducing responsetime, a critical success factor in the PC industry:

We talk to 100,000 people a day—peo-ple calling to order a computer, shop-ping around, looking for tech support.Our Web site gets 1.1 million hits perday. The time it takes for an idea toenter this organization, get processed,and then go to customers for feedbackis down to minutes. We've designed thecompany around speed and feedback.

Information is not, of course, a one-wayexchange. Important data must be shared in areciprocal relationship based on trust andmutual advantage, not just "gathered" fromthe other party. No one of these techniques is,of course, the whole answer. When everyoneis involved, there is ample room for a varietyof approaches. The important thing is that theorganization stays in touch—it is fully awareof both the day-to-day events and longer-term trends in its competitive environment,and that critical information is widely sharedand vectored to decision makers in a timelymanner.

Even when external opportunities orthreats are recognized, many organizationsfail to respond appropriately because they areunable to overcome the barriers of internalinertia and resistance to change. There is nomore important role for leaders than to con-vince their organizations that they mustchange and to then lead them in the rightdirection.

CHALLENGING THE STATUS QUOAND ENABLING CREATIVITY

Here is Edward Bear, coming down-stairs now, bump, bump, bump, on theback of his head, behind ChristopherRobin. It is, as far as he knows, the onlyway of coming downstairs, but some-

times he feels that there really isanother way, if only he could stopbumping for a moment and think of it.

—Opening lines in A. A. Milne's classic,Winnie-thc-Pooh

Unlike Edward Bear, organizations andpeople do have a choice. So why is there oftensuch resistance to change? There are, ofcourse, many reasons why organizations areprone to inertia, slow to learn, adapt, andchange, and in essence just keep "bumpingalong." Researchers have identified numer-ous barriers to organizational change. Theseinclude a commitment to the status quo, var-ious structural, behavioral and political barri-ers, and the constraints of time.

Commitment to the Status Quo

Many people have vested interests in the sta-tus quo. There is a broad stream of organiza-tional behavior literature on the subject of"escalation" where individuals (in both con-trolled laboratory experiments and in actualmanagement practice) continue to throw"good money at bad decisions" despite nega-tive performance feedback. Present manage-ment has a vested interest in the status quoand does not want to admit a bad decision or"defeat." After all, careers may be on the line!

Structural Barriers

Structural barriers—the design of the organi-zation's structure, information processing sys-tems, reporting relationships, and so on—often impede the proper flow and evaluationof information. A bureaucratic structure withmultiple layers, onerous requirements fordocumentation, and rigid rules and proce-dures will often "inoculate" the organizationagainst change.

Behavioral Barriers

Behavioral barriers also come into play, indi-viduals frequentiy took at issues from a biasedor limited perspective because of their educa-tion, training, work experiences, or other fac-

tors. Consider an incident shared by DavidLieberman, marketing director at GVO, a PaloAlto innovation consulting firm:

A company's creative type had comeup with a great idea for a new product.Nearly everybody loved it. However, itwas shot down by a high ranking man-ufacturing executive who exploded: "Anew color? Do you have any idea of thespare-parts problem that it will create?"

This was a vice president, not a lowerlevel employee exasperated at having to builda few new storage racks at the warehouse.He'd been hearing for years about cost-cutting, lean inventories, and "focus." SaysLieberman, "Good concepts, but not alwaysgood for innovation."

Political Barriers

Political barriers have their roots in the powerrelationships within organizations. Theymanifest themselves in a variety of ways,including vested interests (such as the afore-mentioned escalation problems), refusal toshare information, conflicts over resources,conflicts between departments and divisions,and petty interpersonal differences.

Time Constraints

The implementation of meaningful changeusually requires a commitment of time andeffort. This problem of "not having time todrain the swamp when you are up to yourneck in alligators" (slight paraphrase!) illus-trates this point. In effect, Gresham's law ofplanning states that operational decisions wiildrive out the time necessary for strategicthinking and reflection. This tendency isaccentuated in organizations experiencingsevere price competition and/or retrenchmentwherein managers and employees are spreadrather thin.

How can leaders overcome these barri-ers to change, promote organizational learn-ing, stimulate innovation, creativity, andresponsiveness, and manage the difficult

WINTER 2000 29

challenge of organizational change withoutlosing strategic focus or direction? There areno pat answers. Challenging the status quois always a difficult undertaking, but a num-ber of common threads run through thoseorganizations that have made successfultransformations. In most cases, their leadershave created a sense of urgency, facilitatedconstructive dissent, encouraged experimen-tation and risk taking, and gotten everyoneproactively involved in the processes ofchange.

Creating a Sense of Urgency

A leader can directly challenge the status quoby forcefully creating a sense of urgency. TomKasten, a vice president of Levi Strauss,explains this direct approach:

You create a compelling picture of therisks of not changing. We let our peoplehear directly from customers. Wevideotaped interviews with customersand played excerpts. One big customersaid, "We trust many of your competi-tors implicitly. We sample their deliver-ies. We open all Levi's deliveries."Another said, "Your lead times are theworst. If you weren't Levi's, you'd begone." It was powerful. I wish we haddone more of it.

Initiatives such as these—if sincere andcredible—clearly establish the need forchange. Properly utilized, they can be effec-tive both in overcoming resistance and inmotivating employees to constructivelyimplement the necessary solutions.

Facilitating Constructive Dissent

Facilitating "constructive dissent" is also aneffective means of questioning the status quoand stimulating creative thinking. AtMicrosoft, for example, orgaruzadonal normsencourage dissenters to openly question asuperior's perspective without fear of retalia-tion or retribution. Steven Ballmer,Microsoft's CEO, observes:


Bill (Gates) brings to the company theidea that conflict can be a good thingBill knows it's important to avoid thatgentle civility that keeps you from get-ting to the heart of an issue quickly. Helikes it when anyone, even a junioremployee, challenges him, and youknow he respects you when he startsshouting back. i

Motorola has gone a step further and insti-tutionalized their "culture of dissent." By filinga "minority report," an employee can go abovehis uTimediate supervisor's head and officiallylodge a different point of view on a businessdecision. Motorola's recent technology gam-ble, a multi-billion-dollar satellite project calledIridium, was begun as a minority report.According to former CEO George Fisher: "I'dcall it a healthy spirit of discontent and a free-dom by and large to express your discontentaround here or to disagree with whoever it isin the company, me or anybody else."

Encouraging Risk Taking

Closely related to the "culture of dissent" isthe fostering of a culture that encourages risktaking. "If you're not making mistakes, you'renot taking risks, and that means you're notgoing anywhere," claims John Holt, co-authorof Celebrate Your Mistakes (McGraw-Hill,1996). "The key is to make errors faster thanthe competition, so you have more chances tolearn and win." Minneapolis-based 3M's cul-ture is filled with lore and storytelling of howrisk taking and failure led to success. Perhapsone of the best known is the story of howFrancis G. Okie came up with the idea of asandpaper product in 1922 to sell to men as areplacement for razor blades. Obviously, thatidea didn't fly. However, the technology ledto 3M's first blockbuster product—a water-proof sandpaper that became a staple of theautomobile industry. A well-known motto at3M is: "It's better to ask forgiveness than torequest permission."

Companies that encourage experimenta-tion and risk taking make sure ihat failure isnot a four-letter word. People who stretch the

envelope and ruffle feathers are protected.More important, they encourage mistakes as akey part of their competitive advantage.Wood Dickinson, CEO of the Kansas City-based Dickinson movie theater chain, tells hisproperty managers that he wants to see themcommitting "intelligent failures in the pursuitof service excellence." If a manager at Acer,the Taiwan-based computer company, takesan intelligent risk and makes a mistake, evena costly one, CEO Stan Shih writes the loss offas tuition payment for the manager's educa-tion. Such a culture must permeate the entireorganization. As a high-tech executiverecently told us during an interview: "Everyperson must have the freedom to fail."

Getting Everyone Involved

By getting everyone involved, organizationscan maximize the number of innovative ideasavailable for consideration. Concrete mecha-nisms should supplement management phi-losophy and cultural norms. The Walt DisneyCompany, for example, sponsors a "GongShow" in which everyone in the company—including secretaries, janitors, and mailroomstaff—gets the opportunity to pitch ideas tothe top executives. Jeffrey Bair, a former vicepresident at Lotus (now CEO of InstinctiveTechnology) drives the point even harder:"You have to put your corporation's destinyinto the hands of someone you wouldn'twant your daughter dating."

Ideas can also be encouraged throughoutthe organization by well-designed and sup-ported suggestion systems. A pacesetter in thisarea is Dana Corporation, the auto-partsmaker. As CEO Woody Morcott claims: "It'spart of our value system." Also driving the sys-tem is a broad-based understanding of theneed for the program. Dana competes in amature industry and useful suggestions comedown to the issue of survival. Steve Moore, aplant manager, says, "We drill into our peoplethat they are responsible for keeping the plantcompetitive," In addition, instructors at DanaUniversity offer classes on how to come upwith better ideas, and awards and luncheonsare used to recognize and reward the best idea

generators. The result of all of these mecha-nisms to spur suggestions: In 1996, each ofDana's 45,500 employees submitted 1.22 ideasper month —for a total of 666,120 suggestions.Astonishingly, 70 percent of ideas are used!

CONCLUSION

As we stand on the threshold of the knowl-edge age, the rules of the game are changingrapidly. Innovation, flexibility, responsive-ness, and the creative redefinition of marketsand opportunities have become the newsources of competitive advantage in anincreasingly interconnected global economy.

In this rapidly changing world, organiza-tions must become more flexible, moreresponsive, and more willing to change andadapt. They must create and assimilate newknowledge at an increasing pace, encourageinnovation, and learn to compete in newways. The leaders of these organizations mustbe proactive in facilitating organizationallearning and encouraging positive adaptationto external changes. John Browne, CEO ofBritish Petroleum, puts it this way:

Learning is at the heart of a company'sability to adapt to a rapidly changingenvironment. It is the key to being ableboth to identify opportunities that oth-ers might not see and to exploit thoseopportunities rapidly and fully. Thismeans that in order to generateextraordinary value for its sharehold-ers, a company has to leam better thanits competitors and apply that knowl-edge throughout its businesses fasterand more widely than they do.

The demands of this new environmentwill increasingly require organizations torely on and exploit the knowledge, skills,experience, and creativity of all of theiremployees—and that will require a newapproach to organizational leadership. For-mer Citibank CEO Walter Wriston observes:"The person who figures out how to harnessthe collective genius of the people in his or

WINTER 2000 31

EXHIBIT 1 ; STRATEGIC INVENTORY

Using Strategic Vision to Motivate and Inspire

• Does the vision reflect a holistic understanding ofthe Ofganization's purpose, environment, and stake-hoider interests?

• Does the vision chaiienge the organization'sassumption base and mental modeis?

• Is the vision communicated in a way that moti-vates and inspires empioyees at aii ievels?

• Do ail employees feel and support a compellingpurpose for the organization (beyond shareholderreturns)?

Empowering Employees at All Levels

• Does the organization support and encourage"bottom-up" empowerment?

• Does the organization rely on trust and culture, ordoes it control behavior with a system of rules, reg-uiations, and hierarchy?

• Does the organization provide the training, informa-tion, and knowledge employees need to do their jobs?Are rewards and incentives aligned with perfonnanceobiectives?

Accumulating and Sharing InternalKnowledge

• Is internal information widely shared? Are the pro-cesses timely, effective, and efficient?

• Do managers at ail leveis use effective techniquesto tap informal sources of information? Do they havestrong iistening skills?

• Is technology used effectively to facilitate the gath-ering and distribution of internal information?

Gathering and Integrating ExternalInformation

" Has the organization created a "culture of environ-rnental awareness"? Are the key elements of priority,invoivement, focus, process, and motivation inplace?• Do managers throughout the organization have asound awareness of emerging trends and events inthe industry environment? Is relevant external infor-mation broadly shared throughout the organiza-tion?

• Does the organization utijize multiple sources ofcompetitive information—including the Iriternet,pubiished sources, networking, benchmarking andsupply chain partners?

• Are underlying assumptions about the externalenvironment tested regularly?

Challenging the Status Quo andEnabling Creativity

• Does a sense of urgency exist throughout theorganization?

• Do empioyees throughout the organization activelyquestion the status quo?

• is there a strong "culture of dissent" and a "free-dom to fail" mentality?

• Are ideas soiicited from ail leveis of the organiza-tion?

• Does the organization have a culture that encour-ages innovation and creativity?

her organization is going to blow the com-petition away."

The role of leadership is vital, and thechallenges are considerable. To position theirorganizations to compete and win in the com-petitive environment of the 21st century,organizational leaders must place less empha-sis on traditional structures and controls andshift their focus to concentrate on five key pri-orities:

• Using strategic vision to motivate andinspire

• Empowering employees at all levels


• Accumulating and sharing internalknowledge

• Gathering and integrating externalinformation

• Challenging the status quo andenabling creativity.

Clearly, none of these elements alone issufficient to accomplish the overall objective.Nor do they together define a sequential pro-cess. Rather, each reinforces and strengthensthe others. Becoming a more flexible, respon-sive, and innovative organization will neces-sarily involve an ongoing process of organi-

zational leaming that takes time and patience.Leaders must pursue a new agenda and cre-ate a sense of urgency to begin the process,but patience is essential as well. Success islikely to come slowly over time, as a result ofconsistent emphasis and reinforcement of anorganizational commitment to continuousimprovement on each of these dimensions.

Exhibit 1 is a strategic inventory—achecklist to help the reader relate the keyconcepts and ideas presented in this articleto his or her own organization. Use it to stim-ulate the development of your plans andstrategies or as a yardstick to gauge yourprogress toward becoming a more flexible,responsive, and innovative organization.

WINTER 2000 33

SELECTED BIBLIOGRAPHY

For a good overview on strategic vision, refer toJohn Rotter's 1990 article, "What Leaders ReallyDo," Harvard Business Rcincw, 68(3), 103-111, andA, E, Person, "Six Basics for General Managers,"Harvard Business Review, 67(4), 94-101. Recentworks on the need for strategic perspective inthe context of global competition include M. A.Hitt, B.W. Keats, and S. M. DeMarie, "Navigat-ing in the new Competitive Landscape: Build-ing Strategic Flexibility and Competitive Advan-tage in the 21st Century/' Academy ofManagement Executive, 12(4) 22-42; and GaryHamel and C.K. Prahalad's best-selling book.Competing for the Future (Boston; Harvard Busi-ness School Press, 1994).

Seminal works on the concept of the learn-ing organization include Peter Senge's 1990 arti-cle, "The Leader's New Work: Building Learn-ing Organizations," Sloan Management Reviezv,31, 7-23; and his book. The Fifth Discipline: TheArt and Practice ofthe Learning Organization (NewYork: Doubleday Currency, 1990). For aninsightful perspective on learning organizationson the factory floor, refer to D. Leonard-Barton,"The Factory as a Learning Laboratory," SloanManagement Review, 1992,34,23-38.

For a discussion of benchmarking refer toAlex Miller's 1998 book Strategic Management(New York: Irwin McGraw-Hill, pp. 142^143).Our examples are drawn from various sources,including O. Port and G. Smith, "Beg, Borrow—and Benchmark," Business Week, November 30,1992,74-75; J. Main, "How to Steal the Best IdeasAround." Fortune, October 19, 1992, 102-106;speech by Frank P. Doyle, (Executive Vice Pres-ident, Corporate Executive office. General Elec-tric Company) presented at the 63rd EdisonElectric Institute Convention, Orlando, Florida,June 5,1995; and W. C, Taylor, "What Happens

After What Comes Next," Fast Company, Decem-ber-January 1997,84r-85.

For insightful perspectives on escalationrefer to Joel Brockner's 1992 article, "The Escala-tion of Commitment to a Failing Course ofAction," Academy of Management Review, 17(1),39-61; and Barry Staw's 1976 article, "Knee-deepin the Big Muddy: A Study of Escalating Com-mitment to a Chosen Course of Action." Organi-zational Behavior and Human Decision Processes, 16,27-44.

The discussion of systemic, behavioral, andpolitical barriers draws on P. Lorange and D.Murphy's 1984 article, "Considerations in Imple-menting Strategic Control." 77ie/ourHfl/o/Bus(nessStrategy, 5,27-35. In a similar vein, Noel M, Tichyhas addressed three types of resistance to changein the context of General Electric: technical resis-tance, political resistance, and cultural resistance(refer to: N. M. Tichy, "Revolutionize Your Com-pany," Fortune, December 13, 1993, 114-118).Examples from business practice of how thesebarriers can be overcome can be found in B.O'Reilly, "The Secrets of America's MostAdmired Corporations: New Ideas and NewProducts," Fortune, March 3,1997,60-64; D. Sheff,"Levis Changes Everything," Fast Company,June-July, 1996,65-74; W. Isaacson, "In Search ofthe Real Bill Gates," Time, January 13,1997,44-57;E. B. Baatz, "Motorola's Secret Weapon," Elec-tronic Business, April 1993,51-53; T. J. Tetenbaum,"Shifting Paradigms: From Newton to Chaos,"Organizational Dynamics, 1998,26(4), 21-32; and R.Mitchell, "Masters of Innovation," Business Week,April 10,1989,58-63. The quotations attributed toPercy Barnevik, Kenneth Lay, Chris Turner, andother individuals in this article draw on GregoryG. Dess and Joseph C. Picken, Beyond Productivity(New York: AMACOM, 1999).


changing roles: leadership in the 21st century...leadership in the 21st century gregory g. dess...

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